Washington liquor prices stay high

Washington state liquor prices and competition remains high and customers are paying more for their liquor in the wake of the state's transition to private liquor sales.

Residents and businesses such as restaurants, bars and taverns have cut down on the amount of liters of liquor they are buying in the 18 months since the state got out of the booze business, according to data from the Washington State Department of Revenue.

Voters in November 2011 approved Initiative 1183 allowing liquor to be sold in places such as grocery and convenience stores and directing that the state sell off its own retail liquor stores.

Part of the cost increase facing retailers, restaurants and consumers comes from the 10 percent fee on distributors and 17 percent fee on retailers created by I-1183. The new fees are in addition to an existing 20.5 percent sales tax and liter tax. I-1183 went into effect June 1, 2012.

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"People have still not gotten over that tax shock," said Rajiv Malhan, co-owner of Mid-Columbia Wine and Spirits in Kennewick and Richland.

And Tri-City liquor store owners say they have adjusted to a different business environment, but they've had to make cuts along the way.

Competition remains high because although sales are down, the number of retail locations where liquor can be sold climbed from about 330 to about 1,700 retail locations, although not all those locations are still open, according to state data.

Despite the drop in liter sales, the state's overall collection of sales and liter taxes on spirits has grown, according to the data. That's because those taxes are on the price paid for the liquor, which includes the new taxes.

The state collected about $110.8 million between July 11 and Dec. 10, 2013, according to the data. That's about the same as last year and is up 23 percent from the taxes collected during the same time period in 2010.

An entirely new game

Tri-City liquor store owners have had to shift to a drastically different business model now that sales to restaurants -- once a significant chunk of their business -- have evaporated. Restaurants now buy liquor from distributors instead.

Twigs Bistro and Martini Bar in Kennewick is buying liquor from distributors because it's the best deal, said Trevor Blackwell, Twigs director of operations. It's also convenient to have it delivered, rather than sending workers to pick it up.

West Richland Liquor Store owner Kuo-Ying Frenzel said the loss of restaurant customers has been discouraging. Sales to restaurants once made up about 30 percent of her business, she said.

Frenzel said she's made changes, including cutting her staff in half, to three employees.

But overall, she said she feels fortunate because of the support the store has continued to receive from West Richland residents. Many residents are still coming into her store to buy their liquor, she said.

The West Richland store continues to post the full price of each bottle of liquor, including taxes, on the shelves, which customers appreciate, she said.

Mid-Columbia Wine and Spirits also is catering to Tri-City residents.

"We are getting a lot of support from Tri-Citians," said co-owner Michael Shemali.

Shemali said the stores go out of their way to try to help customers. Employees have helped people find an alternate liquor that has a similar taste, but at a lower price than what they were asking for.

They also offer spirits sampling. A sticker on the shelf near the product shows if it is available to taste, Malhan said.

Mid-Columbia Wine and Spirits expanded the number of craft beers available for sale in growlers in response to customer demand, Shemali said. And the store's overall selection has grown about 50 percent since opening.

Shemali said he thinks having the 17 percent retail fee eliminated from sales between stores to restaurants would make it easier to compete with distributors.

But the state Legislature already made a change so that the former contract stores could sell to restaurants without charging the 17 percent retail fee, Frenzel said. While restaurateurs were enthusiastic originally, she said distributors were still able to beat prices.

Smaller slices of a smaller pie

Tri-City liquor stores, like others around the state, are competing with numerous retail locations for the sale of fewer liters of liquor.

Before liquor sales became private, liquor was available at five state-owned stores in Kennewick, Pasco and Richland and three contract stores in West Richland, Prosser and Connell.

Now, Tri-Citians can buy liquor at 57 retail locations in Benton and Franklin counties, according to data from the Washington State Liquor Control Board. The majority are grocery stores and retail chains such as Costco, Target, Yoke's Fresh Market and Fred Meyer.

Four of those who bought the rights to operate a former state store ended up getting a spirits retailer license and opening a business in the Tri-Cities. The three Mid-Columbia contract stores also applied and received a spirits retailer license, according to state data.

Between June through October, spirit retailers sold more than 13.1 million liters of liquor to consumers, which is down a little more than 1 percent compared to the first five months of private sales in 2012. This year's sales also are 11 percent less compared to what was sold the same time in 2011.

In the first year after the privatization, Washington residents bought about 31.5 million liters of liquor, down about 2 percent when compared the year before.

Businesses that serve liquor have bought about 3.6 million liters of liquor between June and October, a 7 percent cut from the same months in 2011, according to state data.

In the first year of private sales, those businesses bought about 8.4 million liters of booze, nearly 13 percent less than the previous 12 months, according to the data.

Swallowing cost increases

Higher liquor costs for businesses and residents remain the overarching negative created by I-1183, businesses say.

Mark Williams, owner of Black Heron Spirits Distillery in West Richland, said his biggest complaint is that the state makes more money in taxes than he does in revenue from his liquor.

"They are taxing the consumer so high that people are driving out of the state to buy their liquor," he said.

But Black Heron continues to have a steady customer base, said Williams, who took over the business this spring.

Customers are paying more -- the average price per liter after taxes between June and October was $23.98, according to state data. That's 33 cents less per liter than the average price during the first year of private sales, but $2.17 more per liter than the average price in the last year of state-controlled sales.

Businesses that serve liquor paid an average of $18.94 per liter including taxes between June and October, according to state data. That's $1.41 more per liter than June 2011 through May 2012, and about 7 cents fewer than the first 12 months of private sales.

And, liquor has gone from a state monopoly to a duopoly, with two distributors, Southern Wine & Spirits and Young's Market Company, selling the majority of the liquor in the state, Shemali said. Each carries different brands, so there isn't much competition for prices, he said.

Malhan said they've had to become smarter buyers so they can get in what customers want at better prices. Prices vary, with the distributors occasionally offering sales.